penalty in liquidated damages

Not quite. The reason that the liquidated damages clause fails is because the Court decides that the estimate of the potential damages is not a genuine estimate of the damage that will be suffered in the event of breach. In other words, it could be based on a genuine attempt but then that genuine attempt is inflated So any amount that the Court believes is in excess of a genuine attempt of potential damage in the event of breach must be an amount representing a penalty ... and the Court says that it's not up to contracting parties to fix the level of penalties - that's the Court's job Now, if that's what you meant in your post then, yes, you are correct. But my interpretation of your post suggested just a slight difference in emphasis / direction OK?

No - what the Court is objecting to is the idea that the "innocent' party (ie the non-breacher) should be taking it upon themselves to try to work in a penalty amount - that's the job of the Court In fact, where the Court decides that some of the agreed liquidated damages sum constitutes a penalty, it's most probable that the Court will negate the liquidated damages clause in its entirety It has to be a genuine pre-contractual estimate of the damage that is likely to be suffered int he event of breach Don't forget that an award of damages is made in order to compensate the victim. It's NOT intended as a punishment

1 Correct 2 No - it's to put the victim / non-breached into the position they would have been in if the contract hadn't been breached 3 This last point is correct OK?